Economics 9708/31 May/June 2022: question paper and mark scheme

Question

Which statement identifies the condition necessary to achieve Pareto optimality? A All consumers maximise their utility subject to their available income. B It is not possible to produce greater output with the resources available. C It is not possible to reallocate resources to make someone better off without someone else becoming worse off. D Potential losers from any reallocation of resources cannot be compensated by those who gain.

Question

The diagram shows a production possibility curve (LM) for an economy producing agricultural goods and manufacturing goods. L agricultural goods R T S M O manufacturing goods What can be concluded from the diagram? A The economy must be allocatively efficient at point R. B The economy is Pareto efficient at point T. C The economy is productively efficient at point S. D The opportunity cost is constant as we move from L to M.

Question

The private benefit of an activity is greater than the private cost. The social benefit of the same activity is less than the social cost. What must be true of the activity? A external benefit = external cost B external benefit > external cost C external benefit < external cost D external benefit > private benefit

Question

What is the central principle of marginal utility theory? A As more is consumed of a normal good, the additional satisfaction gained increases. B Consumers are in equilibrium when the marginal utility gained from good X equals the price of good Y. C Consumers are in equilibrium when the ratio of the marginal utility of goods X and Y are equal to the ratio of their prices. D Consumers are in equilibrium when the total utility gained from good X is the same as gained from good Y.

Question

The diagram shows five budget lines. Line 1 is the original budget line. food 5 1 2 4 3 O drink Which pair of budget lines shows a relatively higher price for drink compared with food after a move from budget line 1? A 2 and 3 B 2 and 4 C 3 and 5 D 4 and 5

Question

Broken rice is an inferior good. What would be the resulting income and substitution effect on the quantity demanded of broken rice if its price falls? quantity demanded quantity demanded due to income due to substitution effect effect A falls falls B falls rises C rises falls D rises rises

Question

Firms in a market decide to collude over the price that they charge for their products. What is not likely to be a feature of the market? A Firms have similar cost structures. B Products of the firms are close substitutes. C There are high barriers to entry into the market. D There is a large number of competing firms.

Question

Firms often remain small even when growth could result in technical economies of scale. What is not a likely reason for this? A Demand for the product tends to change often and rapidly. B Individual entrepreneurs wish to keep a tight personal control over their own firm. C The entrepreneurs who establish the firms tend to be ambitious risk-takers. D The market in which they operate is very specialised in nature, often selling unique products.

Question

The diagram shows the short-run equilibrium for a firm operating in a monopolistically competitive market. cost, revenue AC MC P1 AR MR O Q1 quantity What is not likely to occur at the long-run equilibrium? A The individual firm’s demand curve is more elastic. B The individual firm’s demand curve has moved left. C The profit-maximising price is greater than average cost. D The profit-maximising price is greater than marginal cost.

Question

In which circumstance would direct provision of a product by the government be least likely? A when fixed costs are very high B when the demand for the product is very high but unit costs are low C when the industry faces large natural barriers to entry D when the minimum efficient scale of production is above the level of demand at current prices

Question

The table shows a firm’s total costs corresponding to different levels of output. units of output 1 2 3 4 5 6 7 8 total cost ($) 8 14 18 22 28 36 46 58 If the market price is $8, within which range of output would a profit-maximising firm in a perfectly competitive industry produce in the short run? A 1–2 units B 3–4 units C 5–6 units D 7–8 units

Question

What would encourage an increase in the number of small firms? A increasing government regulation of conditions in the workplace B more risk-averse (cautious) lending policies by banks C stronger government laws against the growth of monopoly D tougher penalties in the case of personal bankruptcy

Question

What is not a source of market failure? A imperfect information B income inequality C monopoly D non-excludability

Question

A government issues free non-tradeable pollution permits to firms. They specify the maximum amount of polluting gases these firms are allowed to emit. In a change in legislation, the permits can be traded with other firms. Assuming that all other costs and revenues remain the same, what will be the impact on the profits of the firms that are now buyers or sellers of the permits? profits of buyers profits of sellers of permits of permits A decrease decrease B decrease increase C increase decrease D increase increase

Question

What is an example of ‘nudge’ theory when applied to encouraging healthy eating? A advertising the benefits of healthy eating B increasing tax on sugary foods C introducing a subsidy for fruit growers D supermarkets putting fruit near cash registers

Question

What is a definition of transfer earnings? A the amount of earnings above that needed to keep a worker in their current job B the minimum earnings needed to keep a worker in their current job C the social security benefits paid to workers whose earnings are below the poverty line D the amount of earnings needed to cause a worker to change to a different job

Question

The chart gives information about the average daily wage rate for all industries in India. 280 rupees 270 per day 260 250 240 230 220 210 200 2011 2012 2013 2014 year What could have caused this trend in wage rates? A an increase in capital-intensive production B an increase in the number of industrial workers C an increase in the number of people unemployed D an increase in the productivity of labour

Question

The table shows the annual percentage economic growth rates of three countries from 2012 to 2018. annual percentage change in real GDP Brazil % Japan % Spain % 2012 1.9 1.5 –2.9 2013 3.0 2.0 –1.7 2014 0.5 0.4 1.4 2015 –3.5 1.2 3.7 2016 –3.3 0.6 3.2 2017 1.1 1.9 3.0 2018 1.1 0.8 2.6 What can be concluded from the table? A Brazil was in the downturn of its trade cycle in 2015. B Japan’s real GDP was at its smallest in 2014. C Spain experienced the worst recession of the period. D Spain was in the downturn of its trade cycle in 2014.

Question

What could cause the official statistics for the national income per head of a developing country to overstate the true level of economic well-being of its inhabitants? A if there is dependence on barter in internal trade B if subsistence agriculture dominates total economic activity C if services are an important component of exports D if there is extreme income inequality

Question

What is shown by the Kuznets curve? A the rise and then fall in the balance of trade deficit following a devaluation B the rise and then fall in the economic growth rate as the GDP increases C the rise and then fall in inequality as the level of income per head rises D the rise and then fall in tax revenue as the tax rate is increased

Question

Which type of unemployment is associated with a deficiency in aggregate demand? A cyclical B frictional C structural D voluntary

Question

There has been a switch in demand from goods produced by labour-intensive methods of production to similar goods produced using high-technology methods of production. This has led to an overall increase in unemployment. What is the best policy to reduce this type of unemployment? A reduce the rate of income tax B increase the rate of interest on borrowing for investment C subsidise products produced by labour-intensive methods D subsidise exports produced by high-technology industries

Question

What would not exist in a free-market, open economy? A autonomous investment B household saving C import spending D indirect taxation

Question

What is most likely to be found in an economy with a positive output gap? A a higher potential than actual GDP B high unemployment C inflation D low labour costs

Question

Which statement about the Keynesian liquidity preference demand for money model is correct? A Both the transactions and precautionary motives for holding liquidity are interest rate elastic. B The demand for liquidity is completely interest rate inelastic at low rates of interest. C The demand to hold liquidity by households is stable. D The rate of interest on long-term government securities is inversely related to their price.

Question

The table shows an individual’s planned consumption at different levels of income. income ($) 100 200 300 400 500 consumption ($) 140 220 300 380 460 What can be concluded about changes in the marginal propensity to consume (MPC) and average propensities to consume (APC) as income rises? MPC APC A constant constant B constant falling C falling constant D falling falling

Question

Which items in the table are classified as foreign aid? official portfolio foreign direct development investment investment assistance flows A no no yes B no yes no C yes no yes D yes yes no

Question

An increase in which factor will cause a decrease in investment spending? A business confidence B company profits C interest rates D national income

Question

The diagram shows the relationship between tax revenue and the tax rate. tax revenue collected 0 25 50 75 100 tax rate on income (%) What is the curve on the diagram called? A income elasticity curve B J curve C Lorenz curve D Laffer curve

Question

The table shows the rate of inflation (consumer prices index) and the monthly percentage rate of unemployment for the USA over a six month period in 2017. month April May June July Aug Sept rate of inflation (%) 2.2 1.9 1.6 1.7 1.9 2.2 rate of unemployment (%) 3.9 3.8 3.9 3.9 3.8 3.7 What can be concluded from this table? A Falling inflation leads to lower unemployment. B Increasing inflation leads to rising unemployment. C The rate of inflation correlates exactly with the rate of unemployment. D The rate of inflation has a marginal effect on the rate of unemployment.